Broker tips: Cairn Energy, RBS, Aberdeen Asset Management

Canaccord Genuity on Tuesday raised its target price on Cairn Energy to 185p from 170p after the company announced the successful testing of the SNE-2 appraisal well offshore Senegal with positive results.

The oil and gas exploration and production company on Monday said operations have been safely and successfully completed following drilling, coring, logging and drill-stem testing and the well is now being plugged and abandoned.

Cairn said drill-stem testing was carried over a 12 metre interval which produced a stabilised but constrained oil flow rate of 8,000 barrels per day of high quality pay.

“This is an excellent result for Cairn (40%, operator) and partners ConocoPhillips, FAR Ltd, and Petrosen (state oil company),” Canaccord analyst Charlie Sharp said.

“Cairn has not provided any updated resource figures (currently 150-670 mmbbls) with 2C of 330 mmbbls, but we would expect an uplift to the base and mid case estimates following the SNE-3 well.”

Cannacord reiterated its ‘speculative buy’ rating on the stock.

Sharp said despite the difficult market for exploration and production firms, there is “sufficient relatively low-risk newsflow coming up to continue our positive view on Cairn Energy”.

“Catalysts include the SNE-3 well result in mid/late February with a resource update then or shortly after, the Bellatrix exploration result late Q1 which could de-risk the potential of additional exploration targets, the possibility of committing to the full six-well programme to include additional exploration targets based on new 3D seismic, and even a resolution to the Indian tax dispute.”

RBC Capital Markets upgraded to ‘outperform’ from ‘sector perform’ and lifted the price target to 375p from 350p.

“2016 should be a year of meaningful progress for RBS with the passing of the bulk of litigation and restructuring charges and ending with a successful stress test that leads to regulatory approval for capital return,” said the bank.

It argued that the share price overly discounts the amount of excess capital and with 28% potential all-in return, it upgraded the shares.

RBC said the London-listed bank has made good progress in the first two of the six-year restructuring programme under chief executive Ross McEwan.

“We believe execution of the plan and return of excess capital is not sufficiently discounted in the current share price and we think risk is skewed to the upside given recent underperformance.”

It added that RBS is the best-capitalised UK bank. "Following the Citizens Financial Group disposal, RBS will report the highest CET1 ratio at 31 December 2015 on our estimates, at 17.0%."

Aberdeen Asset Management was under pressure after Barclays downgraded the stock to ‘underweight’ from ‘equalweight’ and cut the price target to 250p from 350p.

The bank said that while it is tempting to view the shares as solely a macro call on emerging market sentiment, significant other areas remain vulnerable to outflow risk.

Barclays highlighted that in 2015, there were significant outflows from Global Equities and the Multi-Asset area of Aberdeen Solutions .

In total, it identifies around £191bn or 2/3 of Aberdeen’s stock of assets under management as concentrated in areas of significant outflows in 2015, and said sentiment into 2016 still appears negative.

It forecasts a slowing of group outflows to £20bn in full year 2016 from £34bn in 2015, but reckons the risks are to the downside.

With a significantly lower asset base in 2016 year-on-year, revenue declines of 13% are projected.

Barclays noted the shares are a trading at 12.6x calendar 2016 price-to-earnings for a projected 25% decline in earnings per share year-on-year.

“In the light of this negative earnings momentum and outflow risk, we downgrade,” it said.

The bank cuts its 2016 EPS estimate by 8% to 22.5p and its 2017 forecast by 6% to 24.2p.